Leon G. Cooperman, one of the early standard-bearers of the hedge fund industry, plans to return money to outside investors and convert his firm to a family office by year’s end.

“My time has come,” Mr. Cooperman, 75, said in an interview.

Mr. Cooperman notified investors of his decision to wind down the hedge funds managed by his Omega Advisors in a letter on Monday. In announcing the decision, he referred to the Kenny Rogers song “The Gambler” and its famous verse about knowing “when to fold ’em.”

The conversion to a family office that mainly manages his family’s money will mean the loss of jobs at Omega. The firm, which oversees a little over $3.5 billion, has 35 employees. Mr. Cooperman said he expected to retain no more than 15 people. He said having to reduce staff “is the toughest part of the decision.”

Mr. Cooperman is following in the footsteps of other longtime investors, such as George Soros, Carl C. Icahn and Stanley F. Druckenmiller, who now manage most of their fortunes through family offices.

A year ago, Mr. Cooperman’s hedge fund paid nearly $5 million in civil penalties and forfeited profits to settle an insider trading lawsuit filed by the Securities and Exchange Commission. Mr. Cooperman and his firm did not admit to any wrongdoing, and many saw the paltry settlement as something of a victory for Mr. Cooperman.

Mr. Cooperman told investors soon after the S.E.C. sued him that he would not let regulators “destroy my legacy.” But the litigation did lead investors to pull several billion dollars from the firm.

“The S.E.C. did a good job of destroying a good business,” Mr. Cooperman said on Monday.